Bruker AXS: a company on the move.

While 2000 was a year of IPOs for many analytical and life science instrument companies, 2001 saw the cancellation of IPO plans by a number of companies. But not all. In December, Bruker AXS braved an economic recession and less than perfect market conditions to issue nine million shares of common stock at $6.50 a share for net proceeds of $52.9 million (see IBO 12/15/01). With this IPO, Bruker AXS raised money to pay off debt, increase R&D spending and working capital, and expand distribution, facilities and business opportunities. Although the IPO does not substantially affect the control of the company, as 71% of the common stock is still owned by five stockholders, the IPO does signal a repositioning of the company and its investment in the future of x-ray diffraction technology.

Bruker Instruments entered the atomic spectroscopy market in 1997 when it purchased Seimens' analytical x-ray business and formed Bruker AXS as an independent subsidiary. Bruker AXS competes in three markets: wave-length dispersive x-ray fluorescence (WD-XRF), x-ray diffraction (XRD) and single crystal XRD (SC-XRD). Bruker holds a solid position in all three markets. However, not all three markets pose the same opportunities.

WD-XRF makes up the largest share of the XRF market, which also includes energy-dispersive (ED-XRF) and total reflection XRF, but is the slowest growing of the three techniques. The size and cost of ED-XRF systems often make it a more attractive option than WD-XRF, although its resolution cannot match that of WD-XRF. The primary end-user markets for WD-EDF are the petrochemical and other heavy industries. Such industries show little evidence of faster growth as consolidation tends to limit market growth. However, product innovation can drive new sales, especially by adding value, as well as new process systems and aftermarket sales. In 2001, Bruker AXS introduced one new product for the XRF market. The S4 Pioneer is a smaller, higher-throughput, cost efficient system for laboratory and process applications. The company has also stepped up its commitment to customer service. In the spring, it instituted a 24- hour, 7-days-a-week phone support line and on-site service for XRF process customers.

But Bruker AXS' main focus appears to be on higher growth markets. The XRD market consists of single-crystal and powder systems. Powder XRD provides an analysis of material properties in a mixed sample. Applications include material analysis and quality control in industries ranging from petrochemicals to pharmaceuticals. Specialized applications include combinatorial screening and semiconductor analysis. It is in these areas that Bruker ASX expects the future growth for the technique to lie. The polymer, chemical and petrochemical markets are making investments in high-throughput screening as a more efficient and much faster way to develop new catalysts and materials. In particular, the semiconductor and nanotechnology markets are expected to utilize powder XRD for structural research. In 2001, Bruker AXS introduced the D4 Endeavor, emphasizing flexibility, ease of use and compact design.

Although high-throughput experimentation using XRD is being adopted by certain companies, its full acceptance is expected to be a slow process. The market mat is me fastest growing and promises the most immediate opportunities for Bruker AXS is the SC-XRD market. Currently valued at over $50 million, the SC-XRD market has shown high single-digit growth and increasing competition in recent years due to its role in drug discovery. SC-XRD, also called x-ray crystallography (see IBO 12/31/00), is used by researchers to determine the structure of a protein and thus its function. Bruker's commitment to the market was evident earlier this year with its purchase of Nonius B.V. (see IBO 3/31/01) for approximately $6.6 million in cash and debt and liabilities totaling $6.1 million. Nonius was among the up-and-coming competitors in the market and a technological innovator. For the first nine months of 2001, Bruker AXS stated that year-over-year sales increased approximately 9%, or $4.5 million, due to the acquisition. In its filing with the SEC, Bruker AXS stated it is in near completion on four projects originally started at Nonius. This includes the development of higher power anode generators in order to reduce dependence on synchrotron beam lines, and larger CCD detectors. At Pittcon 2001, Bruker AXS introduced its PROTEUM line of SC-XRD systems for proteomics applications, including protein structure analysis and protein crystal screening.

With the money generated by its IPO, Bruker AXS will be able to pay down its debt, increase R&D spending, and hire new personnel. R&D spending for the first nine months of the year is up 113% and the company has entered into alliances with structural proteomics companies Integrative Proteomics (see IBO 6/15/01) and GeneFormatics (see IBO 10/15/01). The IPO's timing was a bit of a surprise due to the scarcity of IPOs at this time. But it may be that Bruker AXS could not wait. Despite some slowing due to the macroeconomic conditions, proteomics research spending remains high and competition for technological improvement tight. IBO's request to interview Bruker AXS personnel was declined due to the company's SEC-required quiet period.

Bruker AXS' main competitors in both the XRF and XRD markets are Philips Analytical and Rigaku/MSC. As part of multinational companies, the firms have a global presence and well-funded R&D and distribution efforts. Philips does not compete in the SC-XRD market, leaving Rigaku as its main competitor. Last spring, Rigaku consolidated its US operation with its Molecular Structure Corporation subsidiary and formed Rigaku/MSC (see IBO 8/15/01) in order to improve efficiency and put both companies in one location. For fiscal year 2001, ending February 28, Rigaku/MSC posted sales of $40 million. Rigaku has stated that it is emphasizing the development of high-throughput crystallography and home-lab protein crystallographic capabilities. In addition, Rigaku/MSC offers contract services.

Bruker AXS' approach will also seek to advance SC-XRF technology with higher-throughput and home-lab options as well as greater sensitivity and software options. As stated in its filings, Bruker AXS' strategy stresses technological innovation, integrated solutions, customer loyalty, new markets, complementary technologies, modular platform technology, and acquisitions and alliances. With the realization of its IPO, the company is well-positioned to realize these goals. The company's brand name is well-recognized and it carries a reputation of technological advancements. In addition, the company participates in three different markets, diversifying its strategy and options. Also Bruker AXS is closely aligned with Bruker Daltonics and Bruker Optics. In the case of Bruker Daltonics, the company also serves the pharmaceutical and academic customers to which SC-XRD systems are targeted. In addition, Bruker benefits from a strong European base through its purchase of Nonius and its collaborative agreement with Siemens AG.

The IPO will no doubt make Bruker AXS a stronger competitor as it is able to expand and take a more innovative approach. Yet the company has also exposed itself to the pressures of Wall Street, and is the only US publicly traded company pursuing the SC-XRD instrument market. Companies with specialized proteomic and genomic technologies were once highly promising investments. But as this year shows (seepage 1), investors are less willing to take the risks associated with such companies. Even though Bruker AXS is not such a company, as it also has product lines devoted to material analysis for industrial applications, the company is clearly relying on this area for most of its growth. To do this, it must strike the market while it's hot.

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